Securing business funding
Andrew Foyle, a member of the famous bookselling family, set up publishing company BLi Education in 2007 and has already built it into a £10 million-plus business. Here he sets out his tips for raising finance to fund business growth.
Getting hold of funding can be tricky, especially for start-ups. Often securing some extra cash can make or break a business but it’s difficult to know what your options are and what help is available. I’ve been around the block a few times when it comes to sourcing funding to expand and develop a business – turning a one-man-band business into a market leading organisation with a turnover in excess of £10 million – and all in under five years. But I made a few mistakes along the way, so here are a few dos and don’ts I have learned to get you off on the right foot.
Subhead: Don’t believe the hype
Post-credit crunch, we’ve all seen the adverts on the TV with banks claiming to be the SME’s best friend. Well, frankly that’s just not the case. Banks will only share in your failure – not your success. This is because they play it safe and typically only loan money on which their return is interest – which obviously isn’t linked to how fast your business grows or how much it’s worth.
In a nutshell, banks would rather see a boring business plan that sees them safely repaid – as opposed to the rocket ship plans the majority of entrepreneurs favour. So, before you believe the hype, don your smartest suit and pay the bank manager a visit, make sure you do your research and, if at all possible, explore as many other options as you can: whether it be friends, family or even Dragons’ Den!
And if the bank really is your only option, play the game and create one plan to keep the bank manager sweet and a separate, internal version that shows exciting growth and a bit more risk.
Subhead: Do approach venture capitalists
For more established businesses, VCs represent a great opportunity to help you take the next step in growing or developing your business. Whether financial backing is needed for planned acquisitions or investment in business critical infrastructure VCs can not only offer the cold hard cash but can open lots of doors to new business opportunities. After all, it’s not what you know, it’s who you know.
That said, there are lots of VC organisations to choose from so, to make sure you’re getting the biggest bang for your buck, approach them strategically, compare offers and stand your corner during negotiations. VCs aren’t referred to as “vulture capitalists” for nothing so always see “no” as a starting point to a “yes”.
Subhead: Do find the right balance
Make sure you only strike a deal that you’re certain you’ll be comfortable with. For many entrepreneurs, it’s hard to let go of even a small percentage of something that has, in the majority of cases, taken blood, sweat and tears to create. And it’s this connection that has got you this far. So, although it’s essential to keep some skin in the game, to move forward successfully you need to be able to separate yourself from your business and strike the right balance. Don’t let sentiment cloud your vision.
Subhead: Don’t trust the spreadsheets
We’ve all seen the entrepreneurs on Dragons’ Den pulling numbers out of the air and proudly displaying anticipated growth graphs in the shape of hockey sticks. In fact, it’s an entrepreneur’s prerogative to exaggerate the figures and set pie in the sky targets for predicted growth and expected year-on-year turnover. But when it comes to valuing your business with a view to obtaining financial backing, it’s essential to be realistic about its financial worth.
It’s time to put down the spreadsheet you’ve spent hours creating and seek some impartial advice – whether it be from friends in the know, ex-colleagues or professional organisations.
Subhead: Do call in the angels
For budding entrepreneurs, VCs may not be a realistic option to explore, especially as many such organisations these days won’t get out of bed for investments less than £1 million. But all is not lost. Angel networks and “venture capital trusts” are more likely to fund the lower end investments – though costs and hassle can be just as big with a £500k investment as they are with a £50million.
That’s life I guess – the only certainty is that the lawyers always make a profit! But, again, the same rules apply as with VCs – know what you want and don’t take no for an answer. Do your research and make sure whoever you partner with is in a position to add real value to your venture.
Subhead: Don’t rely on the Government for help
In the current climate, and with the threat of an economic double dip looming, many businesses will be looking to the Government to help them weather the storm. Now, in an ideal world, Government organisations designed to help SMEs prosper would do just that. But in reality, in my experience at least, this is not the case. Funding and grants are in short supply and advice is often too generic to prove useful.
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